Private equity exits have experienced a significant slowdown over the past two years, due to factors such as the higher interest rate environment, geopolitical tensions and the dynamics of the private equity market. This has left Private Equity managers holding $3.2trn of assets – more than 40% of which has now been held over four years. As private equity backed companies are often taken to market within three to five years of acquisition, many of them are now approaching or within the typical window for sale.
Despite the challenging market conditions, the NBPE portfolio stands out as a robust example of successful exit strategies at work. Despite the significant downturn in exit value and volume in 2023, NBPE’s realisation level is not far below the 5-year average of approximately 17% (ending 2023), as the portfolio generated $171m of proceeds from 12 partial and full exits.
Even following this, 70% of NBPE’s investments date back to 2019 or earlier, potentially positioning the portfolio well for realisations.
Navigating exits
While IPOs typically dominate the headlines, they represent a minority of private equity exits, accounting for just 9% of realisations over the past five years. In 2023, this figure contracted to a mere 3%. With the reduction in IPO volumes, other exit routes move into the spotlight.
In navigating these exits, sponsor-to-strategic and sponsor-to-sponsor transactions – which involve sales to corporates and other private equity firms, respectively – accounted for the large majority of all exits by value in 2023. Although rising interest rates and broader economic uncertainties affected these exit strategies by impacting the cost of capital and dampening risk appetite, they continued to be the predominant methods for exits.
This trend was evident in the NBPE portfolio, with both exit strategies contributing significantly to the total exit value. Realisations during 2023 were driven by full and partial sales of companies within the private portfolio, of which sales to strategic and financial buyers represented almost 60% of the realisation proceeds during the year. The total cash received during 2023 was 12% of the opening portfolio value, and there was a further $64m of proceeds from exits announced in 2023 but which closed in the first quarter of 2024.
Crystallising gains
Among these was the partial sale of USI, a specialist in insurance, employee benefits and retirement consulting. NBPE co-invested $20m in 2017 alongside KKR, leveraging USI's ability to grow both organically and through M&A, as the industry's structure – characterised predominantly by small independent agencies – presented opportunities for growth through market consolidation. Over the past six years, USI completed numerous acquisitions under KKR’s ownership, and grew revenue by 2.5x.
In addition to adding scale, USI has leveraged M&A to extend its geographic reach and build-out its product capabilities. Alongside its acquisition strategy, USI management continues to execute organic growth initiatives through investment in producer hiring and technology to enhance sales effectiveness, improve client experience, and streamline training processes. In December 2023, NBPE partially realised a significant proportion of its holding in USI, receiving proceeds of $44m and crystallising a large part of the gains made on the investment to date.
Leveraging co-investing
Another example of a successful exit can be seen with Accedian, a leader in performance analytics and end-user experience solutions. The company serves service providers and mid-to-large size enterprises, with three-quarters of the world’s communication service providers as its customers.
NBPE originally invested $10m in Accedian in 2018 alongside Bridge Growth Partners. Following a strategic partnership with Cisco in 2021, which significantly enhanced Cisco’s portfolio for troubleshooting and fixing network problems and expanded its market reach into the enterprise 5G market, Accedian was acquired by Cisco in 2023. This acquisition allowed NBPE to fully realise its position at $21.3m.
In addition to partial sales of USI and the full sale of Accedian, NBPE also had full sales of holdings in Melissa and Doug, a toy manufacturing company and FV Hospital, a hospital operator in Vietnam, both to strategic buyers.
Value creation
Although the co-investment model leaves the control of exit timing and strategy primarily in the hands of the lead GPs, it provides co-investors with the transparency and fee efficiency of direct investments, while allowing for prudent manager diversification. NBPE’s co-investment model provides flexibility, with new investment decisions being made on a real-time basis, balanced against the pace of realisations as well as other capital requirements. Given the maturing and diverse portfolio, it appears that NBPE is well-positioned for future realisations.
IMPORTANT INFORMATION
Past performance is not a reliable indicator of future returns. The value of investments and the income from them can go down as well as up, so you may get back less than you invest. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser and prospective investors are advised to seek expert legal, financial, tax and other professional advice before making any investment decision. Overseas investments are subject to currency fluctuations. The shares of NBPE are listed on the London Stock Exchange and their price is affected by supply and demand and the discount at which NBPE trades could vary significantly based on these factors. NBPE can gain additional exposure to the market, known as gearing, potentially increasing volatility. Investors should note that the views expressed may no longer be current and may have already been acted upon. Statements contained in this document that are not historical facts are based on current expectations, estimates, projections, opinions and beliefs of NBPE's investment manager. Such statements involve known and unknown risks, uncertainties and other factors, and undue reliance should not be placed thereon. Additionally, this document may contain "forward-looking statements." Actual events or results or the actual performance of NBPE may differ materially from those reflected or contemplated in such targets or forward-looking statements.